Main navigation

The cost of rising body corporate fees

Paul Keane

07 November 2017

The recent decision by NZ Retail Property Group to abandon their apartment complex in Takapuna, Auckland and to refund any deposits paid, made me contemplate the effect of body corporate fees on apartment dwellers, and for any other business for that matter.

The concept of body corporate fees is derived from the fact that a group of independent owners all own an apartment in one building and share the costs of occupation and operations.These "fees" accommodate such costs as security, lighting, maintenance, management and in most cases local body rates.

The same principal applies in a shopping centre environment where retailers share in the "total operating expenses" of the centre on an area occupied basis. Costs in a shopping centre are shared on a pro-rata basis based on area occupied and charged out as a rate per square metre.

"As a result, the concept of "body corporate fees" in an apartment building or "operating expenses" in a shopping centre is pretty well acknowledged by all occupiers as a fair and reasonable form of paying for those extras!"

So if the concept is accepted, where is the problem? The issue today is that the actual cost of "body corporate fee" or "operating expenses" are seriously impacting on both the user being an apartment owner or a shopping centre or commercial building tenant.

In an apartment complex, where costs of apartments to own are becoming on the fringe of "unaffordable", body corporate fees can push the costs of occupation over the edge. A new apartment owner may or may not fully understand the concept of "body corporate fees". While the fees may be an acceptable level at the outset, over time through an increase in wages, local body rates and repairs and maintenance, they can soon skyrocket out of control.

"Whilst $5 - 6000 per year at the outset of owning an apartment may sound acceptable, it may not be so after 5 or 6 years of occupation where the fees could double."

The same applies to a shopping centre tenant, where the cost of "operating expenses" can on occasions be higher than the rental paid. This is a serious concern for the shopping centre owner in that the value of the asset will likely decline as a result.

Similarly, fees outside of the purchase price of a residential property in particular, can create some serious issues for owners over time, particularly where in times of hardship where incomes for independent apartment owners cannot satisfy the level of fees that have to be paid to satisfy "body corporate rules".

There is much more beyond just "buying an apartment", and the on-going responsibilities of that owner can seriously impact on the value of the investment over time and the ability to undertake a resale and achieve a capital gain. Unlike times past where residential owners were confined to their own plot of land, and thus in control of costs, the risk in multi tenanted environments is seriously likely to impact on the viability of such ownership.

Maybe, we will see apartments reduce in price as a result, particularly in Auckland where until now, demand has outperformed supply!!!

Global Yellow Pages Ltd is an interesting case of technological change, and diversification into some unexpected places.

Unsurprisingly, GYP (listed on the Singapore Exchange) has a history of publishing the Yellow Pages phone books. Those will be published in print for the last time in 2018. Over the last few years, GYP has been diversifying – buying Auckland’s Pakuranga Plaza mall in 2014, then buying a Queenstown housing site in 2016 and an Auckland housing site two months ago.

GYP could be a developer and investor to watch in the years to come – its investments so far could eventually yield 1,000 homes, and they may just be getting started.

GYP also bought the Wendy’s Supa Sundaes franchise business in 2016, so we’re going to go out on a limb and suggest that Wendy’s will be a feature of their shopping centres!

In the Press

Local Media Highlights Monday 30 October - Monday 6 November 2017

Can building still bank on migration?

If the boom is to continue without a major increase in salaries, many of the forecasts rely on strong net migration. But whether industry can bank on this is up for debate, given the political climate. The consensus view is that the pace of construction will ramp up. This has long been expected. But latest projections from the Ministry of Business, Innovation and Employment (MBIE) suggest the peak will be even higher than previously thought.

Slower growth and early spending plans could push Government borrowing higher

A fresh set of Reserve Bank forecasts will give the first new look at the spending landscape facing the new Government, which may well be softening. On Thursday the central bank will release its quarterly monetary policy statement, a lengthy take on the state of the New Zealand and global financial system, as it reviews the official cash rate.

Westpac's NZ arm makes $970m cash profit

Lower impairments in its dairy lending book has helped to boost cash earnings at the New Zealand arm of Westpac bank to $970 million. That was a rise of 9.5 per cent for the year to September 30, up from $886 million in the prior year.

New overseas buyer limits could spark 'over-supply' of houses in Hawke's Bay

The Government's amendment to the Overseas Investment Act, which will classify housing as "sensitive" will create over-supply and negatively impact prices, according to one real estate expert. Regional director of Property Brokers, Paul Whitaker said New Zealand as a whole would be affected.